Securities Law

Shareholders suit accuses IBM of defrauding investors by hiding its cooperation with NSA program

IBM is being sued by a group of shareholders for who say it concealed its cooperation in a National Security Agency surveillance program that has cost the company sales and led to a decline in stock prices.

In a suit filed Thursday in Manhattan federal court, the Louisiana Sheriffs’ Pension and Relief Fund accuses the company of defrauding investors, CNET reports.

The suit says IBM’s involvement in the NSA program caused sales of IBM products in China to “abruptly halt” and the company’s stock price to fall.

The surveillance program, which was disclosed in classified documents leaked to the press by former NSA contractor Edward Snowden, allowed the agency to collect and process foreign intelligence through servers belonging to U.S. tech companies.

The disclosure of the program caused China to sever its business relationship with IBM, resulting in a 22 percent drop in sales in the third quarter, the suit alleges.

“The company knew but misrepresented or concealed from investors that the disclosures of its lobbying and its association with the … NSA spying scandal caused businesses in China as well as the Chinese government to abruptly halt doing business with IBM, leading to an immediate and precipitous decline in sales,” the complaint says.

IBM officials accused the plaintiffs of pushing a “wild” conspiracy theory.

“This lawsuit seeks to confuse IBM’s support for a U.S. cybersecurity legislative proposal—which has yet to be enacted—with the completely unrelated NSA surveillance program called PRISM,” IBM general counsel Robert Weber said in a statement. “Even a cursory reading of the legislative proposal, known as CISPA, makes clear that it has nothing to do with the recently disclosed NSA surveillance program.”

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